BrazilAfrica's consulting market may drop by 14% due to Coronavirus
The severe impact of the Coronavirus on the global economy will have dire repercussions for the consulting sector, and research has now emerged that tries to quantify this damage. For Africa’s consulting sector, the rise and fall of the virus could sweep away 14% of its revenues.
Africa’s consulting sector, for instance, makes up approximately 2% of the global consulting market, which amounted to around $2.9 billion last year. By the end of this year, these revenues are expected to drop by 14% due to a squeeze in activity, to reach a value of $2.5 billion.
The dip is comparable to larger markets such as the US and the Asia Pacific in percentage terms, but the disparity is much clearer when viewed in absolute terms. North America, for instance, accounts for just short of 80% of the global consulting sector, and is set to lose 15% to the Coronavirus.
This represents a revenue dip of $12 billion. Europe’s $45 billion consulting market is set to have the biggest setback of all, expected to drop 28% to reach just over $32 billion. Latin America and the Middle East will see 19% and 18% drops respectively, while the Asia Pacific Region is set to have the least disruption with an anticipated 12% drop.
This is amid the erosion of nearly a fifth of the global consulting industry’s revenues, amounting to a loss of $30 billion worldwide. This is after a decade of recovery for the sector following the global financial crisis, and analysts say that the Coronavirus is a crisis of comparable magnitude.
A global pandemic, the Coronavirus has affected 185 countries across the globe according to the World Health Organisation (WHO), with more than 265,000 confirmed cases and well over 11,000 victims so far. The resultant lockdown of borders and businesses has generated economic damage that cannot be quantified at present.
The consulting sector’s efforts for recovery since 2008 might well be undone by the virus and its ill-effects, as clients across the globe either look to downsize their projects or cancel them altogether. The result is a significant loss in consulting revenues, which Source Global Research has attempted to calculate.
Where the consulting sector generated revenues of $160 billion over the course of 2019, researchers anticipate this figure to drop to $140 billion by the end of this year. This is partly derived from the fact that the next two quarters of 2020 are likely to be just as challenging as the first has been.
There is a silver lining to this outlook, with analysts predicting a potentially speedy recovery from the virus after the summer. Moreover, researchers have highlighted that these estimates are being made with the information currently available, and are subject to considerable change in light of evolutions in the virus.
So the estimates are speculative at present. What is clear, however, is that there are likely to be significant repercussions from the current scenario, and that these repercussions will vary from one region to the next, as is highlighted above. These variations will manifest themselves based on the size of the consulting markets, and their reliance on various global factors.
The economic model used to derive these figures suggests that the impact on consulting revenues is likely to vary considerably by sector and business type within each individual market as well. This depends on the disruption in the sector itself as well as the nature of consulting work involved in each sector.
For instance, consulting revenues for the healthcare sector are in the high-risk bracket, with an expected revenue dip of 28% for consulting services. This is because resources in the healthcare sector are currently being squeezed to the limit in the attempt to fight the spread of the virus. Lower oil prices are likely to tighten spending on energy consulting as well, with a 25% anticipated drop. For the advisory sector that supports Africa’s range of commodity-dependent economies, this scenario does not bode particularly well. Business services are expected to dip by 29%.
Other sectors in the high-risk bracket for consulting firms include the manufacturing and public sectors, although these remain less risky in a broader context, given that the size and term of the project involved might mitigate the short-term risk factors. Africa is currently home to a sea of infrastructure and energy projects that have long timelines. It is unlikely that these will be halted permanently, while advisory services hold key importance in this regard. In other sectors, the role of consultants in rebuilding their operations is likely to minimise damage for consulting firms. The financial services sector is one example, as is the badly affected travel and tourism industry.
The impact will also vary by firm type. For instance, consulting work that requires travel or time at the client site are likely to be severely impacted, while strategy consulting that can be don remotely will take less of a hit. Similarly, lengthy tech projects that have secured a commitment will continue. Overall, the size and branding of the consulting firm will be a key factor in staying afloat, as the larger businesses with more brand value tend to perform best in times of crisis.
